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Western Digital is preparing to pay Seagate $706 million for using Seagate trade secrets.

Needless to say WD is appealing against the Arbitration Court’s decision in favour of Seagate but may have to cough up the readies if its petition for review with the Minnesota Supreme Court fails.

If that happens then WD’s net income for its fourth fiscal 2013 quarter changes to a $265 million loss from the previously recorded $416 million profit.

The whole affair started when Seagate filed a complaint seven years ago, in October 2006, claiming WD had recruited Doctor Sining Mao, an ex-Seagate employee, who had taken trade secrets with him which the Digitales had then used.

Mao had been at Seagate for 11 years and was senior director for advanced head concepts when he left. He joined WD as a VP responsible for wafer design and technology, and Seagate claimed he passed on trade secrets relating to TMR (Tunnelling Magneto-Resistnce) technology, enabling WD to build an MgO TMR read head many months before it would otherwise have been able to do so.

WD requested the dispute go to arbitration, after Seagate pointed out Mao’s employment agreement included an arbitration clause to resolve disagreements over his employment.

”The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration.”

The arbitration process went ahead and found in favour of Seagate. Amongst other things the arbitrator found “that Mao had fabricated documents intended to prove that three of the trade secrets—referenced as Trade Secrets 4-6—had been publicly disclosed before Mao left Seagate. The fabrication involved Mao’s addition of two PowerPoint slides to his copy of a presentation that he had given while still employed by Seagate.”

Bad move.

WD has stated:

"In light of uncertainties, including the fact that the review of the Appellate Court’s decision by the Minnesota Supreme Court is discretionary, the Company has determined it will record an accrual of $681 million for this matter in its financial statements for the three months ended June 28, 2013. This amount is in addition to the $25 million previously accrued in the fourth quarter of fiscal 2011."

So Seagate could get a massive present of nearly three quarters of a billion dollars - lucky Luczo.